Udit Batra, PhD, Waters president and CEO

With biologics making up nearly half (48%) of the total biopharma pipeline, Waters reasons that their developers will step up demand in coming years for analysis of the large molecules, no matter how far along they are in the development pipeline.

That reasoning has compelled Waters to acquire arguably the leading company in the space of large-molecule characterization, Wyatt Technology, for $1.36 billion cash. The deal, set to close in the second quarter, is intended to accelerate Waters’ expansion into biologics—including cell and gene therapies—by combining its business model, analytical instruments, Empower Software chromatography data system, global reach, and scale with Wyatt’s light scattering instrumentation and field-flow fractionation instruments, software, accessories, and services.

The combined company aims to expand its customer base to include drug developers needing to determine the absolute molar mass, size, charge, and interactions of macromolecules and nanoparticles in solution.

“We think we can grow the business quite dramatically, geographically attaching instruments together, and really re-imagining how bioanalytical characterization is done, and taking light scattering into QA/QC [quality assurance/quality control],” Udit Batra, PhD, Waters’ president and CEO, told GEN Edge.

Batra said the Wyatt acquisition represents the third phase in Waters’ growth strategy since he took the company’s helm in September 2020. Phase one called for restoring Waters’ commercial momentum and reviving its core businesses in chromatography, mass spectrometry, and thermal analysis (the latter through its TA Instruments division). Phase two involved rebuilding its workforce and launching successful new products, such as the Xevo™ G3 quadrupole time-of-flight (QTof) mass spectrometer launched in June 2022.

Phase three entails expanding operations into adjacent areas—including bioanalytical characterization for biologics ranging from monoclonal antibodies to cell and gene therapies. That area represents a total addressable market of $1.8 billion, with annual growth of 10% to 12%, Waters concluded in internal estimates it based on consulting data, industry reports, and market research.

That’s a significant slice of the global bioanalytical testing services market, which one firm estimates will grow by a compound annual growth rate (CAGR) of 8.6%, more than doubling to $7.65 billion by 2030 from $3.64 billion in 2021 (Grand View Research).

In bioanalytical characterization, techniques like liquid chromatography-ultraviolet (LC-UV) and LC-mass spec systems address the chemistry of monoclonal antibodies and other large molecules. But few techniques shed light on the physical nature of those molecules as effectively as laser light scattering, where Wyatt emerged as a leader since it was founded in 1982 by Philip J. Wyatt, PhD, the company’s chairman,

$110M in revenues, 200+ employees

Wyatt was the first to incorporate a laser and an on-board microprocessor into its products, and developed the first commercial multi-angle laser light scattering instruments. Over the past four decades, Wyatt has grown to annual revenues of $110 million and a workforce of more than 200.

Philip J. Wyatt, PhD, founder and Chairman of Wyatt Technology

But what really caught Waters’ attention, Batra said, was that over the past three years, privately-held Wyatt enjoyed a three-year CAGR of 20%, more than double Waters’ roughly 8%. Wyatt’s adjusted operating margin profile of roughly 40% is also higher than Waters, which has grown its operating margin from 27% to about 30% under Batra. Also, some 80% of Wyatt’s sales come from instruments designed to characterize large molecules.

“Wyatt is a company that has really gone deeply into the biologics characterization, space, and that is a significant driver of the deal,” Batra said. “We want to improve and increase our footprint in characterizing biologics.  And given that 30% of Waters’ pharma business is towards biologics today, getting a company that already has 80% of their sales in that area definitely adds value.”

“We think of big problems to solve, and there are significant challenges in accelerating the access of large molecules and incredible therapies to many patients. And one of the areas that can enhance it is better characterization,” Batra added.

Soon after Thanksgiving, Wyatt’s founders and top executives approached Waters about acquiring their company.

“They wanted a steward of the company that had a similar culture, and would invest in R&D, and would grow their business. They felt Waters was the best fit, and we felt the same about Wyatt. So, after a bit of diligence, a bit of discussion, we announced a deal,” Batra recalled.

Wyatt focuses on two key business areas. One is multi-angle light scattering, intended for separation, characterization, and quantification of gene therapy vectors, their genetic payload, and other proteins associated with gene therapy development. The other is dynamic light scattering (DLS), designed to provide rapid, low-volume, non-destructive measurements of delivery vehicles that include adeno-associated virus (AAV), lentivirus, and lipid nanoparticles.

Competitive landscape

Among Wyatt’s competitors:

  • Brookhaven Instruments, whose tools are designed to apply light scattering to measure zeta potential, particle size, and molecular weight. The privately held Holtsville, NY, company’s customers include major university labs and national research labs that include Los Alamos, Lawrence Livermore, and Sandia.
  • Unchained Labs, which focuses on DLS and other life-sci tools for biologics and gene therapy researchers. Based in Pleasanton, CA, privately held Unchained Labs was acquired by The Carlyle Group in April 2021 for $435 million, and four months later closed a $155M debt facility with Midcap Financial and Golub Capital to support future acquisitions.
  • Malvern Panalytical, owned by Spectris and formed in 2017 by the merger of Malvern Instruments and PANalytical. The company is a division of Spectris Scientific, which finished last year with revenue of £657.8 million ($803.8 million), up 24% from 2021. Based in Malvern, U.K., Malvern Panalytical last year settled claims on three of five patents the company argued had been infringed by Waters’ TA Instruments, with TA receiving a royalty-free license from Malvern Panalytical for the three.

Batra said the acquisition of Wyatt shows Waters’ intent to grow in its third phase via mergers-and-acquisitions (M&A) as well as through internal “organic” growth.

“We’ve also said that at the right time, Waters will start to allocate capital towards strategically relevant M&A. We’ve talked about that for the last year or so,” Batra said. “That’s what I mean when I talk about a new phase.”

Waters emerged as a buyer last year, when it snapped up the assets of Megadalton Solutions, an Indiana University spinout focused on charge detection mass spec (CDMS) tech and services, for an undisclosed price. The deal grew Waters’ mass spec capabilities to analyzing proteins and protein complexes as large as 108 Daltons (Da)—compared with the 101 to 106 range offered by conventional mass spec.

The Wyatt acquisition, Batra said, will immediately add to Waters’ revenue and margin profile, with unspecified accretion to Waters’ adjusted earnings per share (EPS) beginning in the first quarter of 2024, and deliver a high single-digit plus return on invested capital (ROIC) by 2028.

By then, Waters expects to have generated $70 million in annual revenue cost reductions or “synergies” from the Wyatt deal. Those synergies will not come from eliminating Wyatt jobs, Batra said, but from greater operational efficiencies such as Wyatt staffers accessing Waters’ customer relationship management (CRM) systems, global procurement network, and a Waters operations “capability center” being built in Bangalore, India.

“Waters has the reach and scale to leverage Wyatt’s successful legacy and extend the benefits of our offerings to many new applications and customers. We could not be more excited about the vast growth opportunities we will have as part of Waters,” Wyatt said in a statement. “For decades, we have seen firsthand how closely Waters and Wyatt’s scientific heritage, ethos, and values have been aligned. Becoming an integral part of Waters is a natural way for us to expand our business dramatically.”

“We like the deal’”

Brandon Couillard, a senior vice president and equity analyst with Jefferies specializing in dental, diagnostics and life science tools, estimates that Wyatt could add three to four percent to Waters’ EPS in 2024, and increase the company’s core growth by more than 60 basis points or 0.6%.

With palm trees flanking its entrance and the Santa Ynez Mountains in the distance, the headquarters of Wyatt Technology in Santa Barbara, CA, is a prettier site than most corporate home bases. “I’ve been asked, will we move our headquarters there,” said Waters President and CEO Udit Batra, PhD. “As seductive as that is, no.”

“The asset has a compelling financial profile & good strategic fit,” Couillard wrote in a research note, noting that Wyatt’s technologies measure critical biophysical attributes of not only cell and gene therapies but vaccines, proteins, lipid nanoparticles, and viral vectors.

“These tools are starting to gain traction in biologics QA/QC and will complement WAT’s current portfolio (LC-UV, LC-MS), giving a more complete offering as WAT moves further into this higher-growth market,” Couillard wrote. “We like the deal.” He raised Jefferies’ 12-month price target on Waters stock 7.5%, from $335 to $360 a share.

However, another analyst has taken a cautious view of the Waters-Wyatt deal: Puneet Souda, senior managing director, Life Science Tools and Diagnostics and a senior research analyst with SVB Securities, has maintained his firm’s “Market Perform” rating on Waters shares, and price target of $352 a share. [SVB Securities was not among entities included in the recent Chapter 11 filing of its parent company SVB Financial Group, and SVB Securities operations have continued uninterrupted.]

“We expect it will take time to digest Wyatt’s acquisition and the potential for $70M synergies in five years from just $110M in revenue today,” Souda observed in a research note. “We believe WAT can deliver those synergies with its APAC [Asia-Pacific] reach and is looking far with Wyatt’s light scattering tech as it attempts to address the macromolecular cell and gene therapy QA/QC needs in the longer-term.”

“We are inclined to look carefully at what Wyatt brings to the table,” Souda added.

The companies have asserted that Wyatt’s footprint in Asia-Pacific and Europe will grow, and thus its global reach and scale, through the deal.

Waters said it will fund its purchase of Wyatt using cash plus existing borrowing capacity available on its revolving credit facility, and will temporarily suspend its share repurchase program through the rest of 2023, with free cash flow to be used toward paying down debt. The deal is expected to close in the second quarter of 2023, subject to regulatory approvals and other customary closing conditions.

With palm trees flanking its entrance and the Santa Ynez Mountains in the distance, the headquarters of Wyatt Technology in Santa Barbara, CA, is a prettier site than most corporate home bases. “I’ve been asked, will we move our headquarters there,” Batra said. “As seductive as that is, no.”

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